Amount given as Share Application Money not Financial Debt under IBC: NCLT
Amount given as share application money not financial debt under IBC, rules NCLT
The Kolkata Bench of the National Company Law Appellate Tribunal (NCLT) held that the amount given as share application money is not financial debt under the Insolvency and Bankruptcy Code, 2016 (IBC). The petition has been filed by Mittson Fille Enterprise, the Financial Creditor represented by its Partner, Mrs. Neha Choudhary under section 7 of the Insolvency and Bankruptcy Code,...
The Kolkata Bench of the National Company Law Appellate Tribunal (NCLT) held that the amount given as share application money is not financial debt under the Insolvency and Bankruptcy Code, 2016 (IBC).
The petition has been filed by Mittson Fille Enterprise, the Financial Creditor represented by its Partner, Mrs. Neha Choudhary under section 7 of the Insolvency and Bankruptcy Code, 2016 (“Code”) read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. The Financial Creditor seeks initiation of Corporate Insolvency Resolution Process (“CIRP”) in respect of Sammaan Ventures Limited/Corporate Debtor.
The present petition was filed before the Adjudicating Authority on the ground that the Corporate Debtor has defaulted to make a payment of a sum of Rs.7,12,38,356.16 (Rupees Seven Crore Twelve Lakh Thirty Eight Thousand Three Hundred and Fifty Six and Sixteen Paise) comprising of principal of Rs.5,00,00,000/- (Rupees Five Crore only) and interest @12% as on 27 March 2023. The date of default has been mentioned as 10 November 2019.
The counsel appearing for the financial creditor submitted that the share application money has admittedly not been returned to the Financial Creditor. The Corporate Debtor in its reply to legal notice has contends that the amount given is an interest free loan for ten years. The Corporate Debtor has also undertaken to repay the principal amount paid by the Financial Creditor. The Counsel further submitted that Share Application money in the event of non-allotment of shares attracts interest under section 42(6) of the Companies Act, 2013 and falls within the ambit of “Financial Debt” under IBC.
The counsel for the corporate debtor contended that there is no agreement to show that the Corporate Debtor received the sum as an advance payment toward the issuance of shares or that such monies would be treated as financial assistance having time value of money. The Counsel further submitted that Mittson Fille Enterprise is a partnership firm and cannot legally become a shareholder in the Corporate Debtor as per the Companies Act, 2013 and the Rules and the Company Law Department Circular No. 4/72 and therefore no shares could be allotted.
A Two-Member Bench comprising Balraj Joshi, Member (Technical) and Rohit Kapoor, Member (Judicial observed that “We are of the view the amount of default is not a Financial Debt and therefore petition under Section 7 is not maintainable. The dismissal of this petition shall not be construed in any manner as expression of opinion on the claim of the petitioner and the Petitioner is at liberty to pursue any other remedy that may be available under any other law”.
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